The Term “Insolvency Professional Entity” has no mention in the Insolvency and Bankruptcy Code, 2016. This is sole creation of anxieties of newly enrolled registered Insolvency Professionals reflected in Regulation 12 of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016. This magic creation has no purpose except one apart from its legal existence.
[This post already published in NIRC – NIRC Newsletter June 2017]
Recognition of Insolvency Professional Entities
As mentioned above, Regulation 12 of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 recognize Insolvency Professional Entities.
According to Sub – Regulation (1), a limited liability partnership, a registered partnership firm or a company may be recognized as an insolvency professional entity if-
(a) a majority of the partners of the limited liability partnership or registered partnership firm are registered as insolvency professionals; or
(b) a majority of the whole-time directors of the company are registered as insolvency professionals,
as the case may be.
Thereafter sub – regulation (2) talk about application for recognition, “a person eligible under sub-regulation (1) may make an application for recognition as an insolvency professional entity to the Board in Form C of the Second Schedule to these Regulations.
Eligibility for Recognition
According to sub – regulation (1) of Regulation 13, if the Board is satisfied, after such inspection or inquiry as it deems necessary that the applicant is eligible under these Regulations, it may grant a certificate of recognition as an insolvency professional entity in Form D of the Second Schedule to these Regulations.
Condition for Recognition
According to sub – regulation (2) of Regulation 13, the recognition shall be subject to the conditions that the insolvency professional entity shall –
(a) at all times continue to satisfy the requirements under Regulation 12,
(b) inform the Board, within seven days, when an insolvency professional ceases to be its director or partner, as the case may be,
(c) inform the Board, within seven days, when an insolvency professional joins as its director or partner, as the case may be, and
(d) abide by such other conditions as may be specified.
Liabilities of IPE
According to sub – regulation (3) of Regulation 13, an insolvency professional entity shall be jointly and severally liable for all acts or omissions of its partners or directors as insolvency professionals committed during such partnership or directorship.
De-recognition of IPE
According to Regulation 14, where the Board is of the opinion that sufficient cause exists for de-recognition of an insolvency professional entity, it may do so by passing a reasoned order.
Burden on Independence and Impartiality
An Insolvency Professional Entity may be a burden for independence an impartiality of its partner or director. According to Para 7 of Code of conduct of Insolvency Professionals given in First Schedule of these regulations, an insolvency professional shall not take up an assignment under the Code if he, any of his relatives, any of the partners or directors of the insolvency professional entity of which he is a partner or director, or the insolvency professional entity of which he is a partner or director is not independent, in terms of the Regulations related to the processes under the Code, in relation to the corporate person/ debtor and its related parties.
Purpose of Insolvency Professional Entity
This is nothing but an open and warm invitation for foreign insolvency professionals by Indian insolvency professionals. According to clause (d) of Regulation 7(2) of these regulations, the registration shall be subject to the conditions that the insolvency professional shall not render services as an insolvency professional unless he becomes a partner or director of an insolvency professional entity recognised by the Board under Regulation 13, if he is not a citizen of India.
This is only open window for foreign insolvency professionals to practice in India. Insolvency professional entities are their red carpet to India. This may be a suitable example of excessive delegation. Strangely, many aspirant insolvency professionals demanded this double edge sword during public discourse with the Board and its chairperson.
While demanding provision for insolvency professional agency, most aspirant insolvency professionals hope for creation talent pool. However, these regulations could not bypass legislative wisdom. Hence, we have this press release dated 15th June 2017 issued by the Board. Relevant portion of the press release correctly reads, “No person other than persons registered as IPs with the IBBI can act as IP. Insolvency Professional Entities are neither enrolled as member of an IPA nor registered as IP with the IBBI. They cannot act as IPs under the Code. This is issued to clarify the position under the Code as to who can render services as IPs.”